Krispy Kreme out of administration, directors back in control

Donut chain Krispy Kreme has emerged from administration after creditors approved a deed of company arrangement that will see the company placed back in the control of its directors, including former RAMS Home Loans founder John Kinghorn and investor John McGuigan.

But the chain has emerged from administration in a much-reduced state. A total of 24 outlets have been closed, with 201 positions lost, and creditors will receive just 45c in the dollar.

Krispy Kreme was placed in the hands of administrators Mike Smith and Peter Hillig of insolvency firm Smith Hancock in late October.

The business was essentially running at two speeds; while some stores were performing well, up to half of were unprofitable. Poor site selection, high distribution costs and poor sales conditions were blamed for the company’s woes.

John Kinghorn, who is valued at more than $300 million according to BRW’s Rich 200 edition, had been forced to step in as a secured creditor and underwrite the business during the last few months.

The administration process has allowed for a major restructure of the group. As well as closing 24 staff and cutting 201 staff (although 61 were re-employed in nearby stores), the company has been able to greatly reduce its debt load.

Creditors are expected to receive 45c in the dollar (depending on the value of their debt) from a $2.3 million creditors’ fund that has been established as part of the deed of company arrangement.

Kinghorn and the owner of the Krispy Kreme brand around the world, Krispy Kreme Doughnut Corporation, has backed the deal, which will also see employee entitlements and claims from landlords paid in full.

Krispy Kreme chairman John McGuigan says the administration process will allow Krispy Kreme to emerge in a much stronger position.

“The remaining retail outlets all have strong sales and customer support, and the company can now continue trading without underperforming stores adversely affecting the business,” he said in a statement.

“The process has demonstrated the strength of the Krispy Kreme brand and now this period of restructuring is behind us we will be focused on the ongoing development of the Krispy Kreme brand in Australia.”